IDEAS home Printed from https://ideas.repec.org/p/cfe/wpcefa/2011_06.html
   My bibliography  Save this paper

Can Vertical Separation Reduce Non-Price Discrimination and Increase Welfare?

Author

Listed:
  • Duarte Brito

    (Universidade Nova de Lisboa and CEFAGE-UE)

  • Pedro Pereira

    (Autoridade da Concorrência and IST)

  • João Vareda

    (Autoridade da Concorrência and CEFAGE-UE)

Abstract

We investigate if vertical separation reduces non-price discrimination and increases welfare. Consider an industry consisting of a vertically integrated firm and an independent retailer, which requires access to the vertically integrated firm's wholesaler services. The wholesaler can degrade the quality of input it supplies to either of the retailers. Discrimination occurs if one of the retailers is supplied an input of lower quality than its rival. We show that separation of the vertically integrated firm reduces discrimination against the independent retailer, although it does not guarantee no-discrimination. Furthermore, with separation, the wholesaler may discriminate against the vertically integrated firm's retailer. Vertical separation impacts social welfare through two e¤ects. First, through the double-marginalization effect, which is negative. Second, through the quality degradation effect, which can be positive or negative. Hence, the net welfare impact of vertical separation is negative or potentially ambiguous.

Suggested Citation

  • Duarte Brito & Pedro Pereira & João Vareda, 2011. "Can Vertical Separation Reduce Non-Price Discrimination and Increase Welfare?," CEFAGE-UE Working Papers 2011_06, University of Evora, CEFAGE-UE (Portugal).
    • Handle: RePEc:cfe:wpcefa:2011_06
    as

    Download full text from publisher

    File URL: http://www.cefage.uevora.pt/en/content/download/2366/31772/file/2011_06.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. P.W.J. De Bijl, 2005. "Structural Separation and Access in Telecommunications Markets," Competition and Regulation in Network Industries, Intersentia, vol. 6(2), pages 95-115, June.
    2. Kai-Uwe Kuhn & Xavier Vives, 1999. "Excess Entry, Vertical Integration, and Welfare," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 575-603, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Howell, Bronwyn, 2014. "Separation anxieties: Structural separation and technological diffusion in nascent fibre networks," 20th ITS Biennial Conference, Rio de Janeiro 2014: The Net and the Internet - Emerging Markets and Policies 106840, International Telecommunications Society (ITS).
    2. repec:vuw:vuwscr:19314 is not listed on IDEAS
    3. Howell, Bronwyn, 2014. "Structural Separation and Technological Diffusion," Working Paper Series 19314, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    4. Howell, Bronwyn, 2014. "Structural Separation and Technological Diffusion," Working Paper Series 4353, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    5. Ben Dkhil, Inès, 2014. "Regulation and Investment in Telecom Network Infrastructure Facilities: The Recent Developments and Debates," MPRA Paper 72910, University Library of Munich, Germany, revised 02 Feb 2015.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Evgeny Zhelobodko & Sergey Kokovin & Mathieu Parenti & Jacques‐François Thisse, 2012. "Monopolistic Competition: Beyond the Constant Elasticity of Substitution," Econometrica, Econometric Society, vol. 80(6), pages 2765-2784, November.
    2. Fabian Queder, 2020. "Towards a vertically separated broadband infrastructure: The potential role of voluntary separation," Competition and Regulation in Network Industries, , vol. 21(2), pages 143-165, June.
    3. repec:vuw:vuwscr:19314 is not listed on IDEAS
    4. Pagnozzi, Marco & Piccolo, Salvatore & Reisinger, Markus, 2021. "Vertical contracting with endogenous market structure," Journal of Economic Theory, Elsevier, vol. 196(C).
    5. Keisuke Hattori & Takeshi Yoshikawa, 2016. "Free entry and social inefficiency under co-opetition," Journal of Economics, Springer, vol. 118(2), pages 97-119, June.
    6. Kichko, Sergey, 2017. "Input–output linkages and optimal product diversity," Economics Letters, Elsevier, vol. 158(C), pages 58-61.
    7. Parenti, Mathieu & Ushchev, Philip & Thisse, Jacques-François, 2017. "Toward a theory of monopolistic competition," Journal of Economic Theory, Elsevier, vol. 167(C), pages 86-115.
    8. Inderst, Roman & Wey, Christian, 2003. "Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 1-19, Spring.
    9. Laurent Linnemer, 2000. "When Backward Integration by a Dominant Firm Improves Welfare," Working Papers 2000-42, Center for Research in Economics and Statistics.
    10. Mrázová, Monika & Neary, J. Peter, 2020. "IO for exports(s)," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    11. Howell, Bronwyn, 2009. "Separating New Zealand's Incumbent Provider: A Political Economy Analysis," Working Paper Series 4028, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    12. Kichko, Sergei & Picard, Pierre M., 2023. "On the effects of income heterogeneity in monopolistically competitive markets," Journal of International Economics, Elsevier, vol. 143(C).
    13. Viecens, María Fernanda, 2007. "Pricing strategies in software platforms : video consoles vs. operating systems," UC3M Working papers. Economics we074823, Universidad Carlos III de Madrid. Departamento de Economía.
    14. Howell, Bronwyn, 2012. "Competition and Regulation Policy in Antipodean Government-Funded UltraFast Fibre Broadband Markets," Working Paper Series 18774, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    15. Francesco Silvestri, 2017. "Competition and environmental quality as conflicting objectives: the case of the European municipal waste industry," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 34(3), pages 491-513, December.
    16. Brito, Duarte & Pereira, Pedro & Vareda, João, 2011. "An assessment of the equality of access and no-regulation approaches to next generation networks," Telecommunications Policy, Elsevier, vol. 35(9), pages 818-826.
    17. Paul de Bijl, 2011. "Broadband Policy in the Light of the Dutch Experience with Telecommunications Liberalization," CPB Discussion Paper 169, CPB Netherlands Bureau for Economic Policy Analysis.
    18. repec:vuw:vuwscr:19206 is not listed on IDEAS
    19. Brito Duarte & Pereira Pedro & Vareda João, 2012. "Does Vertical Separation Necessarily Reduce Quality Discrimination and Increase Welfare?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-44, November.
    20. María Fernanda Viecens, 2009. "Pricing strategies in two-sided platforms: The role of sellers’ competition," Working Papers 2009-11, FEDEA.
    21. Dhingra, Swati & Morrow, John, 2017. "Efficiency in large markets with firm heterogeneity," Research in Economics, Elsevier, vol. 71(4), pages 718-728.
    22. Gilles Chemla & Gilles Chemla, 2003. "Downstream Competition, Foreclosure and Vertical Integration," Post-Print halshs-00679847, HAL.

    More about this item

    Keywords

    Vertigal integration; Vertical separation; Non-price discrimination.;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cfe:wpcefa:2011_06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Angela Pacheco (email available below). General contact details of provider: https://edirc.repec.org/data/cfevopt.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.